Britain on track to beat budget forecasts as growth rebounds

LONDON (Reuters) - Britain’s budget deficit narrowed further in October and its manufacturing orders were the strongest in nearly 20 years, setting the scene for a much rosier government outlook next month.

After several years of stop-go growth, Chancellor George Osborne is likely to use a half-yearly budget update on December 5 to vindicate his austerity programme that has brought down Britain’s giant budget deficit.

The underlying shortfall in the public accounts - excluding distortions from the cost of bank bailouts and the transfer of Royal Mail pensions - fell 8.2 percent to 64.8 billion pounds in the first seven months of the fiscal year, the Office for National Statistics said.

Stamp duty revenues in October were 46 percent higher than the same month in 2012, showing the extent to which government coffers are benefiting from resurgent demand for property.

“Today’s data serve to highlight the support which an improving economic climate can provide the government’s finances,” said Colin Edwards of the Centre for Economics and Business Research.

With wages failing to keep pace with inflation, some have speculated the government might use some of the breathing room offered by the recovery to ease the squeeze on household incomes - a move that could prove popular ahead of a general election in 2015.

But a Treasury spokesman played down suggestions that the government was ready to loosen its purse strings.

“Britain’s hard work is paying off, the government’s long-term economic plan is working, and the deficit is down by a third. But today’s figures remind us that the job is far from done and a growing economy alone will not be enough to eliminate the deficit,” he said.

BROADENING RECOVERY

Aided by cheap credit and the housing recovery, Britain’s economy is now the fastest growing in the Group of Seven rich economies.

Two industry surveys, also released on Thursday, increased optimism that the recovery is becoming more sustainable.

Data from the Confederation of British Industry showed factory orders jumped unexpectedly to their strongest level since March 1995. And figures from the Society of Motor Manufacturers and Trades showed car production had its strongest month this year.

Growth this year is likely to be more than double the 0.6 percent seen in the March budget. The Organization for Economic Cooperation and Development has forecast 2013 growth of 1.4 percent, and some private economists are even more optimistic.

Stronger growth typically goes hand in hand with higher tax revenues and economists expect government borrowing this year to be around 10 billion pounds below the 120 billion pounds previously forecast.

“There should be clear blue water between the new numbers and last March’s budget projections,” said Investec economist Philip Shaw.

The improvement in the deficit came despite the Office for National Statistics’ decision earlier this week that the government’s sale of 2 billion pounds of shares in Royal Mail should not reduce headline government borrowing.

The Royal Mail share sale did, however, reduce a cash measure of borrowing which influences how much debt the country issues.

The Central Government Net Cash Requirement posted a surplus of 7.7 billion pounds, more than double the level last October. So far in 2013, borrowing on this measure is running more than 40 percent below where it was at the same point last year.